Russia to begin using cryptocurrencies from September 1

Facing sanctions, Russia explores cryptocurrency use in global trade while expanding trials of digital ruble locally

MOSCOW:

Russia will officially begin using cryptocurrencies for international payments from September 1, in an effort to bypass Western economic sanctions. With difficulties in traditional payment systems due to the sanctions, Russian authorities are turning to alternative methods to enable international transactions. Prior to the conflict in Ukraine in 2022, the Central Bank of Russia had pushed for a total ban on cryptocurrencies. However, their use has increased significantly since Russia was cut off from the SWIFT international payment system.

On August 8, Russian President Vladimir Putin signed legislation that legalised the experimental use of cryptocurrencies for international payments and Forex transactions. The Central Bank of Russia will oversee this process, as the country begins utilising cryptocurrencies for global transactions. While both the Central Bank governor and the finance minister have previously signalled their efforts to legalise cryptocurrencies, there are still uncertainties regarding how these will be implemented in international trade and the security measures that will be in place.

The National Payment Card System, Russia’s operational clearing house for processing bank card transactions within the country, will play a vital role in the trial process. The system, under the full control of the Central Bank, will be crucial as Russia transitions to cryptocurrencies in international trade. Stablecoins, digital currencies tied to traditional fiat currencies such as the US dollar or Chinese yuan, are expected to be used for these international transactions. On July 10, the Central Bank announced that it was assessing mechanisms to regulate and establish rules for the circulation of stablecoins within Russia.

The success of Russia's cryptocurrency initiative in international trade is thought to depend heavily on support from the BRICS nations. Brazil, South Africa, and India have indicated that they are working on the matter, although their full commitment remains uncertain.

A report from the Russian Transstroy Bank highlighted the potential benefits of using cryptocurrencies in international trade but also noted several challenges. These include restrictions on cryptocurrency use in certain countries, technical complexities, and value fluctuations, all of which could hinder Russia's goals.

In addition to the cryptocurrency initiative, Russia is continuing trials for the digital ruble, which began in August 2023. The Central Bank of Russia has been working on the digital ruble since last year, with the aim of integrating it into the cryptocurrency system for international trade.

Russia plans to use both cryptocurrencies and the digital ruble, especially in trade with China, its largest trading partner. The initiative follows China's experience with the digital yuan. Anatoly Aksakov, head of the Financial Market Committee and a member of the State Duma, highlighted that both Russia and China are advancing rapidly in the area of digital currencies. Expanding the use of digital currencies with Belarus is also being explored.

Currently, around 30 companies and 11 cities, including the Moscow Metro and some Lukoil gas stations, accept the digital ruble. President Putin has stressed the importance of widespread adoption of the digital ruble. However, experts caution that successful domestic trials are essential before the currency can be effectively used in international trade.